Monthly report on bank performance, March 2019
Situation in banking system remained favourable last year
The favourable economic situation saw the Slovenian banking system’s balance sheet total increase last year for the second consecutive year, while the increase in deposits by the non-banking sector was double the increase in loans to the non-banking sector. The quality of bank investments is continuing to improve: the NPE ratio declined in all segments of the credit portfolio. The banking system recorded a high pre-tax profit last year, although the net interest margin was still low relative to its long-term average.
The banking system’s balance sheet total increased by 2.2% in 2018 to EUR 38.8 billion. The banks primarily increased their loans to the non-banking sector, their balances in bank accounts, and their interbank deposits. On the funding side, there was an increase in deposits by the non-banking sector, while debt repayments continued on the wholesale markets, albeit to a lesser extent than in previous years.
Figure 1: Balance sheet total, deposits and loans to non-banking sector
Source: Bank of Slovenia
Deposits by the non-banking sector increased by EUR 1.45 billion in 2018, double the increase in loans to the non-banking sector. The largest increase was in household deposits (EUR 1.2 billion), while the increase in deposits by non-financial corporations was smaller than in previous years (EUR 0.4 billion).
Growth in loans to the non-banking sector increased to 3.3% last year, despite a slowdown in December (from 6.1% to 3.3%), which was caused by a decline in loans to non-financial corporations and a base effect (the refinancing of BAMC bonds in December 2017). Household loans now account for more than a quarter of the banking system’s investments; consumer loans increased by 11.8% last year, while growth in housing loans remained just under 5%.
The quality of bank investments improved again in 2018, as the banks reduced their NPEs in all segments of the credit portfolio. The NPE ratio across the banking system had declined to 4.0% by the end of 2018, equivalent to NPEs of EUR 1.7 billion.
Last year saw the banks record their fourth consecutive year of profitability, as pre-tax profit amounted to EUR 532 million (pre-tax profit excluding the net release of impairments and provisions amounted to EUR 488 million). The banks recorded a net release of impairments and provisions for the second consecutive year (in the amount of EUR 48 million). However, the net interest margin remained low compared with its long-term average, at 1.84%.
Figure 2: Bank profitability
Source: Bank of Slovenia
The banking system’s liquidity position had improved further by the end of 2018. The liquidity coverage ratio remained high, and was well in excess of the regulatory requirement. According to the latest figures, the banking system’s capital adequacy remained solid in the third quarter, and above the average in the euro area overall.
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